Actual cash value versus replacement cost: what you need to know when buying home insurance
Although we all hope that we never have to make a claim, home insurance is an absolute necessity. At Millennium Insurance Cooperation, we want to make the process of purchasing home insurance in Alberta as simple as possible. So, here’s what you need to know about the difference between insuring your house at actual cash value or replacement cost.
Actual cash value
Actual cash value and replacement cost are different methods used to calculate the value of insured property. Actual cost value calculates the difference between what it would cost to replace your property today and its depreciated value. Actual cash value is usually the most affordable home insurance option; however, these plans have lower premiums because they take into account depreciation. This means that if you end up needing to make a claim, your payments will reflect the current re-sale value of your property. If you need to replace the contents of your home, you will do so at loss.
For a higher premium, replacement cost insurance ensures that if you need to replace items, you’ll be paid out based on what you’d actually spend to repurchase these items brand new at current market prices. In the event that a natural disaster or other type of calamity causes extensive damage to your home and belongings, replacement cost insurance will cover the costs of rebuilding based on the estimated value of your property.
Guaranteed replacement cost is the most extensive and costly type of replacement cost plan. This type of coverage guarantees that your home will be rebuilt even if the cost to rebuild exceeds the estimated value of your home. This can happen in areas where large-scale disasters occur and it becomes much more expensive to rebuild.
What’s best for you?
It’s generally accepted that replacement cost is better for the policyholder in the event of a catastrophic event. With actual cash value, you might find that the money received only covers half the cost of rebuilding your house to contemporary standards, albeit at a lower premium. If you live in an area that is affected by natural disasters like wildfires or flooding, it’s worth investing in guaranteed replacement cost insurance.
Personal home insurance that works for you
Let a Canadian company protect your Canadian home. Millennium Insurance Corporation offers home insurance plans for those who live in Calgary, Edmonton or elsewhere in Western Canada. We provide both cash value and replacement cost plans at competitive rates. We also offer policies that not only protect your home, but your belongings as well.
Let us help you choose the home insurance policy that right for you. Contact us today to make an appointment or visit one our offices—we’re located in Sherwood Park, Edmonton.